Supply chain disruptions a small threat to low inflation, says BSP

The pace of price increases of consumer goods and services will likely remain muted in the next few months due to weak local demand and the plunge in global oil prices, but supply chain bottlenecks could result in short term spikes, the central bank said on Friday (April 24).

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno stressed that regulators stand ready to deploy a wide array of measures to keep the Philippine economy on an even keel amid the unprecedented disruption caused by the COVID-19 disease.

“The BSP has implemented measures to safeguard the stability of the macroeconomy and provide support for the national government’s broader efforts to alleviate the spillover effects of the pandemic,” he said at an online briefing.

“We wish to reassure the Filipino people of the BSP’s commitment and readiness to deploy its full range of instruments in responding to the needs of Filipino households and businesses amid these difficult times,” Diokno added.

In its 2020 first quarter report, the central bank said that headline inflation rose but the year-to-date rate remains within the target band of regulators.

Year-on-year headline inflation rose to 2.7 percent in the first three months of 2020, higher than the 1.6 percent in the fourth quarter of 2019 but within the government’s target range of 3 percent, plus or minus 1 percentage point for the year.

The higher inflation rate could be attributed to price increases for selected food and non-food items during the quarter, BSP said.

Similarly, core inflation — the inflation rate, excluding price-volatile items like food and fuel — was higher at 3.2 percent in the first quarter from 2.7 percent in the previous quarter.

The central bank said it surveyed private sector economists in the first quarter and received feedback that they expected inflation to ease but remain within the target range.

“Of the various downside risks to the inflation outlook cited by respondents, the predominant risk was that of subdued domestic demand due to the novel coronavirus pandemic,” the BSP said in a separate statement.

“On the other hand, the key upside risks to inflation are seen to emanate from supply disruptions and slower global trade amid the COVID-19 outbreak,” it said.

The central bank noted that, while the domestic economy sustained its growth in the fourth quarter of 2019, “there is considerable uncertainty surrounding the near-term outlook for the economy.”

“However, the outlook for domestic growth has dimmed in recent weeks, as the COVID-19 pandemic caused major disruptions to real sector activity across the globe,” it said. “Uncertainty over the impact of the health crisis has also dampened investor sentiment in financial markets.”

Edited by TSB